Comparative study will pave the way for the launch of a China-EU Shared Classification Catalogue for Green Finance later this year.
The PBOC (People’s Bank of China) has said it will step up efforts to promote the development of green loans, bonds, insurance and derivatives as part of China’s efforts to meet the country’s 2060 carbon neutrality target.
At a press briefing on Tuesday, Wang Xin, Director of the PBOC’s Research Bureau, said the central bank would accelerate the development of a system of green financial standards. “At present, the green finance statistical system is gradually improving, and significant progress has been made in the formulation of a number of green finance standards,” he said.
Wang said a comparative study of the green finance standards in China and the EU is about to be completed. This is intended to pave the way for the launch of a China-EU Shared Classification Catalogue for Green Finance later this year, which will help provide for the regulation of green finance business in China, while ensuring green finance can achieve commercial sustainability.
Wang also said efforts are underway to standardise mandatory environmental information disclosure requirements and strengthen the supervision of financial institutions, which will be required to carry out risk assessments and stress testing, and strengthen their prudential management, in relation to climate-related financial risks.
A compulsory information disclosure system will be established, through which financial institutions will report climate and environmental risks. In addition, the PBOC will promote carbon accounting by financial institutions, Wang said. This will help to improve the availability and accuracy of ESG data on Chinese enterprises and financial assets, and facilitate the participation in China’s green finance market by foreign investors.
The incentive and restraint mechanism will also be “gradually improved” through policies such as green financial performance evaluations and interest subsidies, which Wang said will help to guide financial institutions to increase their allocations towards green assets. This will also strengthen environmental risk management, and help “enhance the financial industry’s ability to support green and low-carbon development”.
According to Wang, the PBOC will encourage product innovation, improve the issuance system, standardise transaction procedures, and enhance transparency. In terms of product innovation, the central bank will promote the development of green loans, green bonds, and green insurance, as well as carbon financial products such as carbon futures and other derivatives.
At the briefing, PBOC Deputy Director Peng Lifeng said the central bank will direct banks to increase the resources that go towards green credit lines, and explore the use of policy measures such as re-lending, financial discounts, guarantee mechanisms, and risk compensation to incentivise financial institutions to develop their green credit programmes.
Peng pointed to Guangzhou, where a subsidy of 1 percent of the loan amount is granted to companies that obtain green loans. The city also provides banks compensation for green loan losses, up to 20 percent of the loss amount.
Financial institutions will be encouraged to develop innovative green credit products and services, including green rights and pledge loan business and financing services for carbon emission trading participants.
Meanwhile, the PBOC has put forward seven principles for financial institutions that wish to participate in Belt and Road investment and financing, among which are obligations to understand ESG risks, disclose environmental information, and use green financial tools. So far, 39 Chinese and foreign financial institutions have adopted the principles.
The PBOC will also use multilateral and bilateral platforms and cooperation mechanisms to promote international exchanges on green finance, and enhance the international community’s participation in China’s green finance policies, standards, products, and markets. China is participating in the IPSF (International Platform for Sustainable Finance) initiative to promote international convergence of green finance standards.
At end-2020, China’s outstanding green loans reached nearly CNY 12 trillion, the highest in the world, Wang said, noting that the bad loan ratio of green loans also stands at levels far lower than other types of loans in the banking industry. The green loan NPL ratio has remained below 0.5 percent for three consecutive quarters, which is 1.6 percentage points lower than the banking industry’s average.
Meanwhile, the stock of green bonds at end-2020 was CNY 813.2 billion, which ranks second in the world. To date, about 90 percent of green bond issuances have had tenors exceeding three years, and none of these instruments have defaulted.